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Earned Income Tax Credit

athaureaux6
Level 7

Hi everybody, 

For this year, the IRS will allow taxpayers use the amount of the earned income from 2019 to figure out the EITC, but this is what the IRS says: 

Earned Income Tax Credit (EITC) Relief

If your earned income was higher in 2019 than in 2020, you can use the 2019 amount to figure your EITC for 2020. This temporary relief is provided through the Taxpayer Certainty and Disaster Tax Relief Act of 2020.

To figure the credit, see Publication 596, Earned Income Credit.

This is my question: if somebody did not have any earned income at all, can they use the 2019 earned income anyway. I would say yes, but I am not sure. I tried using the Interactive Tax Assistant tool, and when they ask to select type of income I chose none and it told me, you do not qualify for the credit. And that gets me confused. It is possible a taxpayer would need some kind of an earned income or it could be 0. 

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43 Replies 43
sjrcpa
Level 15

You cannot get the Earned Income Credit unless you have Earned Income.


ex-AllStar
Just-Lisa-Now-
Level 15
Level 15

You need earned income in both years for this option to be used.


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
athaureaux6
Level 7

Thank you Lisa, I appreciate it but I still have some doubts, 

How about if somebody worked in Wallmart for a week, it will have earned income from a week salary, but could benefit from using the 2019 earned income to get the EITC in 2020. How is this case different from having for example 550 earned income from a week salary in a year than 0 income? Sorry to ask. 

 

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Wow, that does sound like a major problem in the tax law to me.

Example: Take two people, "Bob" and "Joe," who have identical tax situations in 2019, allowing them the "sweet spot" of EIC. On New Year's Day 2020, Bob worked for 8 hours, but Joe did not, and then neither of them worked for the remainder of 2020. Bob gets $6k of EIC, and Joe gets didly squat? For 8 hours of work?

Dang, if I had a client like that, my ethics would be sorely tested on that one. "Are you SURE you didn't earn any income at all? Not even babysitting or something?"

Just-Lisa-Now-
Level 15
Level 15
Its messy, and doesnt make much sense, I agree. But we didn't make the rules, we just have to follow them.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
athaureaux6
Level 7

Hi everybody, I would like you to try this in the software for tax year 2020

For example, Julia, 35 years old, two children, one 1 and the other 3 years old. W-2 shows 1 dollar in box 1. That is all she has. Because she is allowed to use the earned income from 2019 which was 13567, she will get a lot of money. The software shows no errors. 

Same situation, but no w-2, nothing. The software still allows to select the amount of earned income from 2019 and will get the same refund. Although this time, the return will show 1 error, saying that the EITC was obtained from unsubstantiated sources, or something like that. 

How that could be possible? 

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Just-Lisa-Now-
Level 15
Level 15
Logic and fairness don't always play a part in taxes.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
Just-Lisa-Now-
Level 15
Level 15

Ok, Im wrong, when I input someone with no earned income for 2020 and just give them unemployment, I can still choose to use the 2019 earned income on Sch EIC and EIC computes.

You don't need earned income in 2020.


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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athaureaux6
Level 7

How about if the person did not collect any employment, literally, nothing. Can the person still use the 2019 amount? That was my original question. 

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TaxGuyBill
Level 15

@athaureaux6 wrote:

How about if the person did not collect any employment, literally, nothing. Can the person still use the 2019 amount? That was my original question. 


 

Yes, they can still use the 2019 amount.  However, as I mentioned before, AGI can come into play in some circumstances to change the amount they qualify for.

Just-Lisa-Now-
Level 15
Level 15
No income? Were they someone else's dependent? How did they support themself?

FWIW I just tried a no income return, and input the 2019 earned income on Sch EIC and it computed.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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athaureaux6
Level 7

I know it computed. But my software shows 1 error in the final check, because it says the EITC was calculated from undocumented sources. So you can not efile it.  As soon as you put 1 earned income for 2020, you still can use the 2019 amount but the software shows no error and you can efile it. 

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Just-Lisa-Now-
Level 15
Level 15

You cant efile a return with zero income.


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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TaxGuyBill
Level 15

Lisa, I suspect this error message is specific to EIC.  The OP says it says something about income from undocumented sources, which sounds like it is specific to this situation.

But you are right, you can't e-file a tax return with $0 of income, but you CAN add $1 of interest (or "other income") to allow it to e-file.

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BobKamman
Level 15

@TaxGuyBill " you CAN add $1 of interest (or "other income") to allow it to e-file."

Where do you find that?  It's true that in the previous incarnation of Section 6428, phantom income was allowed.  And it may be that those FreeFile hybrids are worming their way through the computer that way.  But let's be careful about perpetuating an urban tax myth.

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Due Diligence, Due Diligence, Due Diligence. It's possible, but you'd dang well better have notes that show you asked all the right questions!

TaxGuyBill
Level 15

@athaureaux6 wrote:

This is my question: if somebody did not have any earned income at all, can they use the 2019 earned income anyway. 


 

Maybe I'm misunderstanding this conversation, but if a person had $0 of Earned Income in 2020, and SOME Earned Income in 2019, YES, they can choose to use the 2019 Earned Income.

Is that what you are asking?

However, keep in mind that AGI may affect the credit, so just because they had Earned Income in 2019 doesn't necessarily mean they will qualify for a credit.

rbynaker
Level 11

Maybe I'm misunderstanding this conversation, but if a person had $0 of Earned Income in 2020, and SOME Earned Income in 2019, YES, they can choose to use the 2019 Earned Income.

 


I don't do EIC returns so I just figured there was something from the IRS that I missed.  The law is surprisingly brief:

"If the earned income of the taxpayer for the taxpayer’s first taxable year beginning in 2020 is less than the earned income of the taxpayer for the preceding taxable year, the credits allowed under sections 24(d) and 32 of the Internal Revenue Code of 1986 may, at the election of the taxpayer, be determined by substituting
(1) such earned income for the preceding taxable year, for
(2) such earned income for the taxpayer’s first taxable year beginning in 2020."

sjrcpa
Level 15

So @Singing Tax Lady 's example is correct. Wow.

I don't see many EIC returns either.


ex-AllStar
athaureaux6
Level 7

This is what I mean:   A client named Julia, 37 years old, divorced, worked one week in Walmart, two little children ages 1 and 3. The w-2 shows 451 dollars. She had 13355 of earned income in 2019 which was transferred to the EITC worksheet of the 2020 tax year because of the Election to use earned Income from 2019 to calculate the 2020 EITC. She will get 5350 if she elect to use the 2019 earned income amount and 190 dollars if she uses the 451 earned income from 2020. How is that possible. Even if you had 1 dollar earned income in 2020, you will be able to get the 5320 because you can elect the 2019 earned income amount to figure out the credit. I am so confused. 

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TaxGuyBill
Level 15

@athaureaux6 wrote:

 Even if you had 1 dollar earned income in 2020, you will be able to get the 5320 because you can elect the 2019 earned income amount to figure out the credit.


 

You don't even need $1 of earned income.  It could be $0.

Some low-income people DEPEND on the EIC each year, so that is what this provision is for.  In your example, that person may be used to getting $5,000+ of EIC every year.  This is a provision for those who lost their jobs (lower Earned Income) so that they can still get that $5,000+ of EIC that they are used to depending on.

athaureaux6
Level 7

I get what you mean. But if you do not have earned income, the software for 2020 will tell you there is 1 error, because the EITC was calculated from undocumented sources and it will not let you efile the return. This happens if you have 0, income, but it seems you still can get the credit using the 2019 earned income amount, but as soon as you input 1 as an earned income the error dissppears and you can efile the return, it does not make sense to me. 

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Just-Lisa-Now-
Level 15
Level 15

Because you need at least 1 dollar of income to Efile a return.


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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athaureaux6
Level 7

That does not make any sense. You need 1 dollar of income to efile a return and you do not need any income in 2020 to get a big EITC? Am I right?

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athaureaux6
Level 7

Hi Lisa, now another question comes to my mind: 

How a person with no income can get the EITC using the 2019 earned income amount but how that person we are using in the example will have two dependents with no income. What about if the IRS asks to prove she supported the two kids? 

 

This is crazy, but interesting

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Just-Lisa-Now-
Level 15
Level 15
If theyve got no income then it begs the question, do they qualify as someone elses dependent for 2020? Did someone else support them?

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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BobKamman
Level 15

@athaureaux6  "What about if the IRS asks to prove she supported the two kids? "

Support is not a requirement for EIC.  And there are probably many examples where the taxpayer with zero AGI is living on child support, food stamps and Section 8 rent assistance.  My experience is that IRS will do something stupid, like asking for school enrollment records for a 2-year-old.  

TaxGuyBill
Level 15

That's just a software error, that they will hopefully fix.

In most cases, you can disable error-checking and it will e-file fine.

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athaureaux6
Level 7

I am so worried about this, I actually have a client in this situation we are discussing, and I am still confused. I am calling Proseries tomorrow to see what they say about this discussion. 

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TaxGuyBill
Level 15

@athaureaux6 wrote:

I am so worried about this, I actually have a client in this situation we are discussing, and I am still confused. I am calling Proseries tomorrow to see what they say about this discussion. 


 

There is no point in calling ProSeries because they do not give tax advice.

The law is clear, that a person can use their 2019 Earned Income.  

What exactly is worrying you?  What are you uncertain about?

 

The only thing you need to check on is to determine if they qualify as somebody else's dependent.  But you need to be doing that anyways, regardless of EIC.

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athaureaux6
Level 7

Hi everybody, we had a good discussion yesterday about this EITC for 2020. I was looking at the 2019 tax software and they had the similar election to use the prior year earned income amount to figure the EITC but ONLY for federally declared disaster zones. It looks that because of the virus Pres. Trump made the change for TY 2020 for everybody when he signed the TAX Certainty and Disaster TAX relief ACT on December 27 th. I get that but it is still not clear to me that with 0 earned income you still can use the 2019 earned income. 

The EITC is the most important credit and there is no information about this anywhere. Even all the online tools including the IRS tax assistant says you need earned income to claim the credit but we seemed to agree yesterday that you do not need earned income this year. What is the truth, and if it is what we agreed, why there is no information about it. 

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athaureaux6
Level 7

I still have not found any source that says that in 2020 you can get the EITC with no earned income at all, using only the 2019 earned income amount. Yesterday many of us agreed that it could be possible but honestly, I doubt it. Where does it say that? I am talking about 0 earned income. 

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TaxGuyBill
Level 15

@athaureaux6 wrote:

I still have not found any source that says that in 2020 you can get the EITC with no earned income at all, using only the 2019 earned income amount. Yesterday many of us agreed that it could be possible but honestly, I doubt it. Where does it say that? I am talking about 0 earned income. 


 

The LAW says it.  Rick posted the pertinent part about the previous year Earned Income above (see my copy-and-paste below).

As I said, the law is really clear.  If your Earned Income in 2020 is less than your Earned Income in 2019, you can choose to use your 2019 Earned Income.  Then you (or the program) just fills out the EIC worksheets to see the results.

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf#page=40

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf#page=45

 

"If the earned income of the taxpayer for the taxpayer’s first taxable year beginning in 2020 is less than the earned income of the taxpayer for the preceding taxable year, the credits allowed under sections 24(d) and 32 of the Internal Revenue Code of 1986 may, at the election of the taxpayer, be determined by substituting
(1) such earned income for the preceding taxable year, for
(2) such earned income for the taxpayer’s first taxable year beginning in 2020."

athaureaux6
Level 7

I understand but if it is that the case, why no source or people have said plain and simple:

Even if you have NO earned income in 2020, you still can claim the EITC in 2020 using the amount of 2019. 

 

That is why everybody was confused yesterday. 

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TaxGuyBill
Level 15

@athaureaux6 wrote:

I understand but if it is that the case, why no source or people have said plain and simple:

Even if you have NO earned income in 2020, you still can claim the EITC in 2020 using the amount of 2019. 


 

I said that plain and simple yesterday.  Even if you have $0 of earned income in 2020, you can still claim the EIC in 2020 using the amount from 2019.

What would make you think you CAN'T do that?  As was pointed out, the LAW is clear:  If 2020 Earned Income is less than 2019 Earned Income, you CAN do it.  If 2020 Earned Income is $0, and 2019 Earned Income is more than $0, that fits that provision perfectly.

athaureaux6
Level 7
 
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athaureaux6
Level 7

This is what gets me confused: 

All the people, all the articles, clearly state and say that you need to have earned income in 2020 to claim the credit. Even the own IRS Interactive TAx assistant will confuse you when it asks you if you have earned income in 2020, which in the case we are talking, you do not have. And above all: 

Why the software does not allow the efile and marks it as error saying that the EITC was calculated using undocumented sources. 

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TaxGuyBill
Level 15

Are the articles about this specific tax provision?  Probably not.  The 'usual' rule is that you need earned income to get EIC.  But this law says you can use 2019 Earned Income.

The tax software is still mostly programmed for 2019.  As I said at the outset, that is just an erroneous message from ProSeries because they don't have the programming finished yet.  It is still based on the 'usual' rules that say you need current year income, which is clearly NOT what the law says.

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Skylane
Level 9
Level 9

IMO, EITC has always been the most poorly thought out, most abused, and most inequitable credit in the code. Questioning the “modification” is useless. As a preparer, follow the rules, be sure to document, and roll your eyes at the massive holes. 

Yes, there must be earned income to trigger the credit.

If at first you don’t succeed…..find a workaround
athaureaux6
Level 7

I agree with you, but it seems that in 2020 you do not need any income to get the EITC because they are allowing people to use the 2019 earned income amount. That is why we are trying to figure out. 

BobKamman
Level 15

@Skylane "EITC has always been the most poorly thought out, most abused, and most inequitable credit in the code."

Well, what do you expect?  It goes back to the Nixon Administration, and we all know what a Marxist Socialist he was,

Or maybe Socialist Marxist.  I am so confused by politics these days.  

Skylane
Level 9
Level 9

@BobKamman  My favorite political mantra these days (and it doesn’t matter which side of the fence you’re on) is “I’m right... you’re evil”

I like to think of the EiTC like this....  The idea, “let’s help single or low income working parents is basically good. But using the tax code to administer social programs just doesn’t work.

An attorney, S-Corp, MFJ, with 3 kids takes $250k w2. Pays f/t secretary  40k and p/t secretary 12k. P/t secretary is his wife. No problems.

Same scenario, but attorney and partner are not married. Both file single. She claims the kids and credits. 

probably a 15-20k swing in tax liability.  Anything wrong with this picture? 

If at first you don’t succeed…..find a workaround

Like so many political things (I was tempted to say "these days," but this goes back to Ancient Rome and probably before), the idea is great on paper, but just doesn't perform well in practicality.

I've said -- even in radio interviews -- that I would be happy to simplify taxes to a point where my (current) job would go away. It'll never happen.

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